Ex-dividend and cum-dividend: what they mean when you buy shares

Ex-dividend means the shares are trading without the right to the most recently declared dividend. If you buy on or after the ex-dividend date, you will not receive that payment; it goes to the seller. Cum-dividend means the opposite: you buy with the right to that dividend. The share price will normally fall by the amount of the dividend on the ex-dividend date, so a buyer is not paying for a payment they will not get¹.

The two terms describe a single moment in a company's dividend timetable. A company declares a dividend, sets a record date, and the shares go ex-dividend on the next business day after that record date². Buy before that point and you are cum-dividend; buy at or after it and you are ex-dividend. The dividend itself is unchanged: it is a sum of money paid by a limited company, organisation, investment trust or fund to its shareholders out of the profits it has generated³.

For a buyer, the practical question is simple. To receive the next dividend, the shares must be owned before the ex-dividend date. A purchase made after it does not receive that payment, and the share price at that point reflects the dividend having been detached. The rest of this page sets out what each state means, how it affects what a holder receives, and why the timing of a purchase matters.

Ex-dividend: buying without the latest dividend

When shares go ex-dividend, the buyer is not entitled to the most recently declared dividend. The term is used in the market to signal that the right to that payment has passed to the seller. If you buy the shares today, you will not receive the most recently declared dividend¹.

The ex-dividend date is when the stock starts trading without the value of its next dividend payment⁵. Since May 2024, it is always the same day, which makes the timetable easier to follow than it once was⁵. Shares that are bought in the company after this date will not have a guaranteed dividend³.

The price adjustment is the part that matters most to a buyer. The share price will normally fall by the amount of the dividend to reflect this¹. That is not a sign of trouble in the company; it is a mechanical adjustment so that a buyer on or after the ex-dividend date does not pay for a payment they will not receive. The seller keeps the dividend, and the buyer pays a lower price.

There is a practical consequence for anyone watching a share price around a dividend date. A fall on the ex-dividend date is expected and is not the same as a fall caused by news about the company. If you are comparing prices across a dividend date, the drop is part of the mechanics, not a change in the company's prospects.

Cum-dividend: buying with the right to the dividend

Cum-dividend is the mirror image. If you buy shares when you are entitled to the most recently declared dividend, this is known as the shares being cum dividend¹. The term comes from the Latin for "with dividend", and it describes the window before the ex-dividend date.

To be entitled, you need to have bought the shares before the ex-dividend date⁴. Buy within that window and the dividend is yours. The shares then go ex-dividend on the next business day after the record date, and investors who sell during the ex-dividend period are still entitled to the payment².

This matters for anyone buying shares with income in mind. A buyer who wants the next dividend needs to complete the purchase before the ex-dividend date, not on it. Settlement timing can matter here: if you deal close to the date, check when your purchase is recorded, because the entitlement rule turns on when you bought, not when you decided to buy.

Cum-dividend also affects how a share is priced. While shares are cum-dividend, the price includes the value of the coming dividend. Once they go ex-dividend, that value drops out. For a buyer, the two states are broadly equivalent in total value: cum-dividend you pay more but receive the dividend; ex-dividend you pay less but do not.

Ex or cum: how the two states affect what a buyer receives

The table below sets out the two states side by side.

The entitlement rule is the one to remember. You need to have bought the shares before the ex-dividend date⁴. Everything else follows from that: if you bought before, you are cum-dividend and you receive the payment; if you bought on or after, you are ex-dividend and you do not.

There is a further wrinkle for anyone holding funds rather than shares. If a new investor buys income shares between distribution dates, before the next ex-dividend date, they will still receive an equalisation payment on the first distribution following purchase². That payment is not a dividend in the ordinary sense; it is a return of part of the capital invested, designed to keep the income payment fair between investors who bought at different points in the distribution cycle.

For shares held through an employee share plan, the rules can differ again. If you take dividend shares out of a plan during the first 3 years, the dividends that you used to buy the shares are taxed as a dividend in the year of withdrawal⁶. That is a tax rule, not an entitlement rule, but it affects what you actually keep.

Why timing a share purchase matters for dividends

Timing a purchase around a dividend date changes what you receive, but it does not change the underlying value of what you own. The share price will normally fall by the amount of the dividend on the ex-dividend date¹, so a buyer who misses the dividend pays less for the shares. The seller who keeps the dividend receives the payment but sells at the lower price.

That is why buying shares purely to capture a dividend is not a free lunch. If you buy cum-dividend, you pay a price that includes the dividend, and then you receive it. If you buy ex-dividend, you pay less and do not receive it. The difference is largely a matter of timing and tax, not of value.

Tax is where the timing can matter more. You can earn some dividend income each year without paying tax⁷. Above the allowance, dividend tax rates apply: 33.75% for dividends otherwise taxable at the higher rate and 39.35% for dividends otherwise taxable at the additional rate⁸. Dividend shares are not subject to National Insurance contributions⁶. Whether a dividend falls in one tax year or the next can therefore affect what you keep, particularly if you are near a rate boundary.

There is also a record-keeping point. Where shares have gone ex-dividend and an estate is being valued, the 'XD' (ex-dividend) marking means the dividend that is due remains payable to the deceased, and the net value of the dividend is included in the valuation¹⁰. That is a specific rule for inheritance tax valuations, but it shows how the ex-dividend state follows the shares.

Finally, dividends are never guaranteed. If a company has paid dividends in the past, it doesn't guarantee they will do so in the future¹¹. A company can cut or cancel a dividend, and the ex-dividend date only tells you who is entitled if the dividend is paid as declared.

How the dividend timetable fits together

A dividend passes through several dates, and the ex-dividend date is only one of them. The sequence below shows how they relate.

The ex-dividend date is when the stock starts trading without the value of its next dividend payment⁵. It falls on the next business day after the record date². Buy before it and you are cum-dividend; buy on or after it and you are ex-dividend.

For funds, the timetable can be different. Income shares in the Fundsmith Equity Fund go ex-dividend on 30th June and 31st December, and the dividends are paid out on or about 28th February and 31st August¹². The Fundsmith Stewardship Fund follows the same pattern for income shares¹³. That is a fund-specific timetable, not a general rule, but it shows that the gap between the ex-dividend date and the payment date can be several months.

Dividends from investment trusts and funds

Investment trusts and funds pay dividends on their own timetables, and the same ex-dividend logic applies. A dividend is a sum of money paid by a limited company, organisation, investment trust or fund to its shareholders out of the profits it has generated³. The ex-dividend date determines who receives it.

Investment trusts have a feature that ordinary companies do not: they can trade at a premium or a discount to the value of their assets. When demand is strong, the shares can be worth more than the NAV; when demand is weak, they can be worth less¹⁴. That is separate from the dividend, but it affects the total return an investor receives.

Some investment company shares have particular dividend characteristics. Zero dividend preference shares aim to deliver a fixed amount of capital growth over a set period of time; this amount isn't guaranteed, and ZDPs don't pay any income¹⁵. They are not a dividend-paying investment in the ordinary sense, despite the name.

For anyone holding shares through a platform, dividends are usually credited to the account. With fractional shares, if a company pays a dividend, you'll still receive it, but the amount will depend on how much of a share you own¹⁶. The entitlement rule is the same: you need to have bought before the ex-dividend date⁴.

Tax on dividends

Dividend tax is the tax on dividends you receive when a company you're a shareholder of makes a profit and pays some of that profit out to you¹⁷. You can earn some dividend income each year without paying tax⁷. Above the allowance, the rate depends on your other income.

Dividend shares are not subject to National Insurance contributions⁶. If you hold shares in an ISA, the tax treatment is different again, and the rules on dividends within an ISA have changed in recent years⁵.

For employee share plans, there are specific rules. If you take dividend shares out of a plan during the first 3 years, the dividends that you used to buy the shares are taxed as a dividend in the year of withdrawal⁶. There is no limit on reinvestment into dividend shares⁶. If you receive an optional dividend, you'll typically have two choices: receive stock, which is the default, or receive cash⁴.

Where to get help

If you have a complaint about an investment, the Financial Ombudsman Service can look at it. An 'execution-only' sale, where you buy a plan without receiving advice, is unlikely to be upheld as a complaint about advice, because you understood you were not receiving advice¹⁸.

For free, impartial guidance on investments and tax, MoneyHelper is available. For tax questions, GOV.UK sets out the rules on dividend tax and employee share schemes⁷.